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Strategy
A good strategy is a strategy that works, a strategy that wins. Formulation and implementation used to be separate and successive, nowaday you tend to implement as soon as possible and build up the formulation at the same time. Why do strategy fails (Forbes) *Having a plan for plan sake *Not understanding the environment *Partial commitment *Not having the right people involved *Writing the plan and putting it on the shelf *Unwillingness or inability to change *Having the wrong people in leardership position (exploration vs exploitation) *Ignoring marketplace reality, fact, assumption *Uncontrollable events Why is implementation so important *Many of the successes and failures are related to the implementation more than the definition. Risks must be taken in the low not in the high: Be wise when others are bold, be bold when others are scared (crisis). Soft skills are important but cannot replace hard skills like finance and strategy. they are complementary not exclusive. Strategy 1.Introduction Strategy help the manager understand what actions will be most likely to achieve the organization’s goal given its internal and external context. Strategy is not tactic, it is not action focused. It define the kind of products, how they will compete and, the type of resources and capabilities the company will need. Strategy should be communicated and understood by all decision makers. Strategy is dynamic. It should change with the context and let manager be efficient in stable environment. To design a strategy, managers need to understand the relationship between actions, context and performance. But also the sources of performance, threats and opportunities. Performance, manager and firms Performance: Need to be defined and measurable. Need to match the goal of the company (most of the time : profit, or owner object if non-profit) Firms: a specific business unit in a specific contexte. Each firm need its own strategy. A company can have several firms. Manager: Strategy is the responsibility of any general manager. No matter his/her position in the hierarchy. =2.Business strategy= Long terms goal + scope + competitive advantage + Logic Long term Goals: The Where Refers to the position or status the firm want to reach. They may take a long time to achieve and then must be maintained. Should provide a sense of purpose and/or deter competition. Scope The What Define the product, the market and the target. Therefore, define what the company will not do. Competitive advantage The How Must state compelling reasons to explain that it will be able to compete. Most of the time, better service or lower cost. It is an advantage only if it contribute to the long term goal. Logic The Why Why this scope and competitive advantage will work and why the company will succeed. Mission, value and purpose statement Complementary to the strategy. Reuse some elements like the goal but rarely use the logic. It helps : Clarify and emphasize the goals, help for non profit organization communication, strengthen the reputation if the values are genuine and distinctives. Vision Mental vision of a possible and desirable future. Bridge from the present to the future. It is never sufficient nor necessary. Providing vision is a role, formulating the strategy related to that vision is a skill. Strategy statement Not often communicated, Maybe because it was never articulate, inconsistent, or fear of the competitors. Communicating a strategy statement offer: clarity (for decision makers), coordination, incentives, efficiency, evaluation, adaptation, change. But it can create rigidity and inertia. 7 steps to implementation : Identification, evaluation, option developpement, evaluation, selection, communication, implementation Strategy identification: Based on routines and decision making in each key area (finance, sales and marketing, manufacturing, etc.). Then understand the logic that ties everything together. Strategy evaluation: testing the logic. Argument about how the company intend to achieve its goals. Swot buffed with factors corresponding to the scope and competitive advantage. =3.Competitive advantage= You create value when the customer is willing to pay more than the cost of production. Performance is about creating value but competitor can also steal the value you create. Company should also focus on capturing value. There is no special recipe here. Competitive advantage come from a position or capabilities. Position advantage come from 3 forms: Industry structure (ie: monopoly), heterogeneity in the industry (Geographic presence, economy of scale), or network and relationship. IE: Brand name, customer relationship, government protection, first mover. Capability advantage: What the company is doing better. Strong know how, expertise, organization Transitory vs enduring Not all competitive advantages are made to last. Some are temporary. To make a capabilities sustainable, make it hard to copy (complexity, patent, trademark) or stay ahead of your competitors. Position is harder to sustain because it may be a non market advantage (trade barrier). Yet, EOS and industry structure are hard to break. Position and capabilities Companies usually have both with one stronger than the other. Cost-quality frontier Competitive advantage can be : produce better quality for same cost or same quality at lower cost. It offer the possibility of selling at the same price as competitor or moving the price according to the company advantage. Both allow to capture value. Still relate to either position, capability or both. Quality and cost are subjectives and context dependant. You rarely see quality and cost advantage. But you can see both disadvantage. To order companies, you can use a graph with cost and advantages as axis. Several companies can be efficient at different level of cost-quality. You do not have to have the best quality or the lowest cost, but an efficient quality-cost position. =4.Internal context: Organization design= The assets’ raw quality is not necessarily enough. How you use them and organize them is equally important. For employee and unit, we must look at incentives. Is everybody is using the organization designed.. How to make sure everything work with incomplete information. ARC: Architecture, Routine, Culture Architecture: division of the firm, reporting relationship, hierarchy, recruiting and compensation. Routines: formal and informal procedures, processes and habit of day to day. Culture: commonly held values and beliefs. =8.Competition in concentrated market= 2 type of market: oligopoly (several big player, action of one influence the others) or dominant firm (1 really big player). Usually profitable market, but some change can also make it really competitive. In an oligopoly you care about the players, the actions(what you can do and how), the timing, the information and the repetition. You do not only care about your action but how your competitors will react (based on their best interest) and if it is going to create value at the end. Competitors are doing the same. If the market has a dominant player and the product are differentiated enough (meaning, a difference in price does not mean a difference in sales), the market tend to act like a monopoly. By setting a high price, the dominant firm allow everyone to make profit and reduce the risk of a challenger by increasing the loose of attacking it. =11. Strategy in a changing environment= Change can be market (competition, technologie, substitution) or non market (laws, ethic, NGO). We need to think about how they are going to change the rules of the game. The life cycle of a company can also drastically change in case of a change in its environment. Creating new growth potential or ending the business on the spot. Life cycle During the emergence phase, the biggest challenge is uncertainty. Uncertainty act on different level technologies, markets,internal organizations and strategy. The market will usually select the winning approach solving what are the key element to succeed. Everybody start copying the winner and we move to global Growth. During Growth, there is little competition as the market is larger than the combined capacity. This is also when new entrant try to exploit the niche. The market move to EOS and incremental innovation rather than disruptive. Once the market is stable, we reach maturity. We enter a game of mergers, acquisitions and incremental R&D. Once the market decline (market on non market reasons) you can still make money if the decline is permanent because competition become too expensive and therefore stop. So stay a bit but not till the end. Organization Organization tend to evolve at the same time as the life cycle. 2 main type : Vertical or horizontal The trend is to start vertical and move to horizontal as the market tell you where to put the structure. Vertical structure usually integrate most of the value chain while horizontale structure focus on few key steps. Managing strategic change If your environment change your strategy and organization need to change. Strategy because you need to adapt and organisation because you need a fit between the 2. Make sure your incentive, promotion and hiring process match the kind of behaviours you want/need. Especially when new technologies destroy previous competences. You can create new organization depending of the project. =12. Strategy with market in DSIR= DSIR: Demand-side increase return. Same as network externalities, network effect, positive feedback, demand-side EOS. The product’s benefit to each user increase along with the number of other users. Sources of the phenomenon Compatibility benefits: if everyone can use the same product, everybody win. Work if there is standardization benefits (wrench, nuts and bolt; railways gauge, language) Network benefits: the product is interesting only if other use it (telephone, internet) but the bigger the user base, the more constrain and cost on the resources needed to implement them. Competition in DSIR market Winner take it all market. There is a installed base of users (who already use the product) and a tipping (people tend to use the most used solution, a slight share advantage can create complete shift with time. You usually want high switching cost to prevent users from using other solutions. As long as users can’t switch all together, they will stay. Unless the new solution is worth the loss. If the new technology is sufficiently better, users will switch. As more and more user switch the less the cost of switching. Companies have incentives to invest in new technologies but not too fast as it cannibalises precedent product’s revenues. They will tend to pre-announce future technologies and react to competition announcement. Why should a consumer switch if the same upgrade is coming 3 months later in his ecosystem ? Once you have a large consumer base, you can ask for a price premium to accommodate the network advantage. You can also charge them to upgrade to more advanced version once they are tied with the product.. The more expensive you are, the more incentive you give to competition to enter and the user to switch. Therefore, companies may tend to use cheaper than expected price or even no charge at all. Systems of components Sometime your product must work with other. Then you need to choose if you want to make it compatible with external products (ie: OS + Apps) and if you want to leverage your dominant position. You can leverage a dominant position by using exclusive resources of your product, blocking suppliers/customers/competitors. But it is not always worth it. Managing the adoption process => get users Create the belief you are the next standard. You can create an open (free) standard. Your reputation mater, use it. Get a strong partner that will influence others. Show already signed customers Do not discourage piracy (yet) Reduce the cost (Leasing and price commitment) Standard setting Standard can also be set by outside players like government or organizations (ISO). Standards can benefit everyone but work if the members of the committee want a standard and have no interest in which standard is used Category:Strategy Category:Master Category:Theory Category:Core